Thoughts on Debt

Many people remain uninformed about credit card debt and about credit cards in general. When asked about their debt, 35% of American’s said they carry balances on credit cards, and about 5% said they didn’t know. (How do you not know?) Maybe it is just that they don’t want to admit it. Studies by the Federal Reserve and data release by credit card companies indicate that the percentage of households with credit card balances in this country is at least in the mid 40’s. It could be even higher with the economy on the down swing.

In a separate study, nearly 2/3 of more than 1,000 people said they carry a revolving balance on one or more of their credit cards. Another 8% said they didn’t know whether or not they did. And 15% of people with credit cards say that they have experienced at least some amount of difficulty in paying their minimum balances. They continue to do studies about consumer debt which still show that most consumers don’t really understand the whole thing. They have a limited understanding of reading their credit report, understanding their credit scores and in spite of this they say that consumer knowledge about credit is improving. For example, less than a third of Americans understand that a credit score is a number that estimates your likelihood of paying back a debt. A credit score is based on but is separate from your credit reports. The three major credit reporting agencies are Equifax, Experian and TransUnion and the best known credit score is the FICO . The best way to improve your credit score is to pay all your bills on time. The range is about 300-850 and the higher your score the better the credit you can get and the lower the interest rate available to you.

More than a third of American’s were unaware that insurance companies use credit scores to approve your coverage and to set your rate. Less than 3/5 knew that regularly maxing out a credit card, even if paying your bills on time will lower your credit score. In addition, 79% of American’s thought they could get their credit score free once a year, however that is your credit report, not your credit score. You generally have to pay about $15 for your credit score number.

Most people don’t realize that they need to be checking their reports for accuracy every year, and they should check their credit score every few years and before they apply for a mortgage or other large line of credit. Washington Mutual estimates consumers can reduce finance charges by $105 a year on average by raising their scores 30 points.

Knowledge is power and knowing more about credit, how it works, and how we can make it work for us, is an important part of the system. Getting information now about credit, debt, credit score and other credit information, can help us improve our credit score and keep it in good standing. This can open up some major opportunities for you. Just remember it is never too late to start improving your credit rating.

Tags: consumer debt, Credit, credit card, credit cards, credit rating, credit reports, credit score, Debt, line of credit, mortgage, reduce finance charges, revolving balance